Does the law of one price hold for hedonic prices?

Waights, Sevrin (2018) Does the law of one price hold for hedonic prices? Urban Studies. ISSN 0042-0980

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Abstract

Hedonic prices of locational attributes in urban land markets are determined by a process of spatial arbitrage that is similar to that which underpins the law of one price. If hedonic prices deviate from their spatial equilibrium values then individuals can benefit from changing locations. I examine whether the law holds for the hedonic price of rail access using a unique historical dataset for Berlin over the period 1890-1914, characterised by massive investment in the transport infrastructure. I estimate the hedonic price of rail access across multiple urban neighbourhoods and time periods to generate a panel dataset of hedonic price differences that I test for stationarity using a panel unit root test. Across multiple specifications I consistently fail to reject the null hypothesis of no unit root and accept the alternative hypothesis that the law holds. My estimates indicate a half-life for convergence to the law of one price that lies between 0.28 and 1.14 years. This result is consistent with spatial equilibrium.

Item Type:	Article
Official URL:	http://journals.sagepub.com/home/usj
Additional Information:	© 2018 The Author
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	N - Economic History > N9 - Regional and Urban History > N93 - Europe: Pre-1913 R - Urban, Rural, and Regional Economics > R0 - General > R00 - General R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R12 - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R31 - Housing Supply and Markets
Date Deposited:	11 Jan 2018 09:57
Last Modified:	18 Sep 2024 14:45
URI:	http://eprints.lse.ac.uk/id/eprint/86418

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